Commentary: Stronger government intervention a recipe for possible disaster

Commentary: Stronger government intervention a recipe for possible disaster

Calls for stronger government intervention to address the non-stop price growth in Canada’s most in-demand housing markets might be appropriate in the current climate, but a Toronto lawyer argued that such a move will have a muted impact at best.

In a recent contribution for The Huffington Post Canada Blog, Ike Awgu warned that greater pressure from federal and provincial governments would only lead to unpredictable—and possibly counterproductive—effects on the health of the housing sector.

“There has been talk of how to solve this latest crisis and it of course revolves around government interference. The only rule I’ve thus far been able to deduce as ubiquitous about government interference is that it always creates an unintended result,” Awgu wrote.

In particular, government removal of existing restrictions on rent control (as advocated by various lobby groups) will prove disastrous.

“The unintended consequence of any such action would be that fewer investors and builders would create new housing. Further decreasing the supply of rental units in an environment where demand is increasing,” Awgu explained. “This would be a recipe for a shortage in overall supply and an explosion in the number of low-quality units and landlords willing to create new housing (but only if they cut every corner possible in its construction and management).”

“An ubiquitous price freeze on rents (and that is what a one to three per cent increase per year is tantamount to) would paradoxically lead to less housing and decreased housing quality.”

And ultimately, the solution rests in one simple move: improving supply.

“In time, so long as there is no government interference designed to spare the market from bubbles that grow too large and pop on their own, the system will re-balance and recover. Purchasers will realize that not all homes are worth $100,000 above asking price.”